Educational Articles

Taking Advantage of the Scarcity of Rare Earth Minerals

Jeremy Butler
| November 11, 2010

Given China’s monopolistic desire to control the vast majority of rare earth mineral resources, investors are probably wondering how they can capitalize on the growing demand for these elements from green-energy technology, and military companies.

As far as we know, there is only one publicly traded company in the United States that has acquired the rights to mine rare earth minerals (such as neodymium, dysprosium, lanthanum, and molybdenum). This company is called Molycorp Inc. (MCP), and it has been in the business for many years acquiring the experience technology and cost efficiencies necessary to extract these materials. Now that rare earth minerals are becoming truly rare and their demand is increasing rapidly, Molycorp stock is rising fast.

Rare earth minerals are prized as raw materials in the manufacture of permanent magnets for wind turbines and tidal energy equipment, cruise missiles, and batteries for hybrid and electric cars. They are also used in low-energy light bulbs, LED lights, and solar panels. A company like Molycorp is crucial to alleviating a supply crunch that could cripple U.S. high-tech development. Congress is currently considering legislation that would re-establish rare earth mining in the United States. But new mines are likely to take three to five years to reach full production. Existing uranium mining companies, such as Uranium Energy Corp. (UEC), may be able to move faster by reprocessing previously mined material, but the specific skills and technology take time to develop.

The only other way to acquire these rare earth minerals, other than by paying the high prices China will undoubtedly charge, is to extract them from modern appliances that already contain them. This practice is known as urban recycling. Such potential modern-day recyclables as televisions, fluorescent light bulbs, internal combustion engine car batteries, cell phones, and transistor radios contain these precious elements. Here is an opportunity for private equity groups to create start-ups and IPOs to capitalize on such recycling. Venturesome investors should be on the lookout for such investments, and consider jumping on the bandwagon—assuming one has some tolerance for risk.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.